"I actually think the most convincing graph in bitcoin is if you
go to GitHub and look at the number of repositories that
reference bitcoin. It's a nice up and to the right graph."
Hammer says: "That's where it gets even more interesting. BitPay
have created a set of products for payroll, settlement,
intercompany transfer. BitPay is essentially not just a payment
acceptance company — Stripe for bitcoin — it's a broader open
source software company for bitcoin applications.
But he adds: "I don't think just because a few companies haven't
worked well, people are abandoning bitcoin. In fact I think the
aggregated trends point the other way."
He says: "If you invest in bitcoin thinking 'oh my god bitcoin is
happening in the next 2 years and we should hire up and staff up
really quick for that' you're probably going to feel some pain.
It's more of a linear growth over the next 5 years."
BitPay is building enterprise applications that use the
blockchain, such as payroll software. The company recently
laid off staff in a bid to "reduce costs" and "better align
with the pace of growth" in the industry.
He added: "I don’t think bitcoin is going to be anywhere near as
important as people say it is today. That’s a personal view. The
blockchain is very transformative."
"But, again, you're up against the adoption curve. All of the
large banks have various innovation units and are either making
small investments or experiments. But, it takes time. And it
takes capital. Really the situation BitPay is in is a market
adoption situation, which is applicable to the whole sector.
You're waiting for a tipping point."
Coinbase
co-founder Fred Ehrsam testifies at a hearing on bitcoin
regulation in New York January 29, 2014.
REUTERS/Eric Thayer
One of the few high-profile and well-funded bitcoin businesses
that is still fully behind the cryptocurrency is Coinbase, the
San Francisco-based bitcoin wallet and exchange business. The
company is still committed to its original business model and
seeing between 2,000 and 5,000 new account openings a day,
according to co-founder Fred Ehrsam.
Ehrsam puts at least part of the blame for company's being forced
to pivot on overzealous investors, who piled into bitcoin too
soon.
All three companies are struggling with the fact that bitcoin is
not breaking into the mainstream in the way many had hoped.
BitPay CEO Stephen Pair
told me back in June: "We keep adding merchants — we're up to
over 60,000 now — but they're selling to the same pool of Bitcoin
early adopters."
Some of the most high-profile and well-funded startups looking at
bitcoin are now pivoting their businesses and distancing
themselves from the digital currency, less than two years after
the hype around bitcoin blew up.
Finally BitPay has also moved away from its original business
model of providing software to let businesses accept bitcoin
payments and, like the others, is falling back on the blockchain
to try and find another way to make it work.
"You have to look at the broader picture: like with every new
technology, whether it's the advent of the internet or email,
there's an adoption curve," Jan Hammer told me. Hammer is a
venture capitalist at Index Ventures and an investor in BitPay.
The future, according to CEO Jeremy Allaire, lies in using the
technology that underpins technology, called the blockchain, to
make sending any form of money as easy as sending an email. He
didn't want to talk about bitcoin.
Circle, BitPay, and Bitreserve — who between them have raised
over $130 million — have all shifted away from bitcoin in one way
or another in recent months.
Uphold CEO Anthony Watson told me at the time of the relaunch:
"When we say bit, we don’t mean bitcoin, we never did. We meant
bit as is bits and bytes and reserve is obviously holding the
value. But people are confused, they think we’re just a bitcoin
company and it makes sense as our first use case was bitcoin."
The blockchain uses a network of computers to verify each
transaction, removing the need for a "trusted middleman" like a
bank or clearing house to sit in between transactions.
An example of an "interesting thing" Ehrsam hopes to see is a web
browser linked to a bitcoin wallet. "Let's say I go read Business
Insider," he says, "and I've chosen to surf the premium internet,
so every time I hit one of you pages I pay half a cent but I
don't see any ads."
Allaire says it's always been Circle's aim to go beyond bitcoin
but that hasn't
always been obvious to outsiders.
"At the end of the day, what's going to make bitcoin successful
is more people making more interesting things, just like the
beginning of the internet," he says.
Instead, the blockchain uses the wisdom of the crowd to regulate
the system. A certain percentage of users on the whole network
have to sign off on any given transaction — which with the
blockchain is actually cheaper, quicker, and easier than
traditional transaction systems.
Index Ventures' Jan
Hammer.
Index
Ventures
Ehrsam says Coinbase now has around 2.8 million accounts. On
Friday the company
launched the first ever bitcoin debit card in the US to let
people easily use the digital currency to pay for things.
He says: "If you look at the number of transactions on the
bitcoin network a day, it's an up and to the right graph where
it's roughly doubled in the last year. From that perspective
bitcoin is doing pretty well, it's quite healthy."
He says: "I guess contrary to public expectation around bitcoin,
and more broadly around the blockchain space, adoption has been
slower [than expected]."
Meanwhile Bitreserve, which began life as a bitcoin wallet and
exchange, is even more explicit in its disowning of the digital
currency. It
recently re-branded and re-launched as Uphold, a more general
online money service that, like Circle, is using blockchain
technology to offer free currency transfers.
But even he admits bitcoin needs to become more than just a way
to pay online for it to really become a breakout success.
Ehrsam told me: "We've had crazy periods where that will be 7,000
to 10,000 accounts a day. In terms of baseline growth in normal
times, that's probably where it was at this time last year but it
is growing. More people are dipping their toe in the water even
if it's just in a small way."
"If you look at investor interest in bitcoin, it's probably about
as crazy as the price is. When it's hot it's hot, when it's not
it's not. It's kind of like the tech equity bubble in the run up
to 2001 — there's so much potential there and that's why
investors get excited. But the highs can be really high and the
lows can be really low."
Despite
recent spikes in price, using bitcoin to actually pay for
things — and even just holding it as a speculative asset —
remains a relatively niche activity.
Circle — which makes a mobile bitcoin wallet and is
backed by Goldman Sachs — recently began accepting US dollars
and
when I met the founders in London recently they told me that
bitcoin was just the first use-case of their technology.
A
volunteer smashes a computer during "Good Riddance Day," an event
designed to allow people to shred their bad memories from 2009,
in New York December 28, 2009.
REUTERS/Lucas Jackson
That's after people failed to adopt it in the way entrepreneurs
and venture capitalists had hoped.
While consumers have failed to pile into bitcoin as companies and
investors hoped, there has been an
explosion of interest among banks and other financial
institutions in blockchain technology.
A recent
Economist cover story on blockchain technology declared:
"Bitcoin itself may never be more than a curiosity. However
blockchains have a host of other uses because they meet the need
for a trustworthy record, something vital for transactions of
every sort."
Hammer says BitPay is "not in difficulty" despite the layoffs and
says the company has enough cash in the bank to survive for
several years at least.